DeFi Summer Is Making a Comeback, Steno Research Says

As a seasoned researcher with a keen interest in the dynamics of the crypto market, I find myself intrigued by Steno Research’s prediction of a DeFi resurgence. Having closely observed the crypto landscape since the 2017 bull run, I can attest that this isn’t just another hype cycle.

The resurgence of Decentralized Finance (DeFi) is underway, and although the total value locked (TVL) in the crypto world is currently below its 2021 maximum, it could potentially reach an all-time record high by the first half of next year, according to a report from Steno Research released on Friday.

The return of DeFi (Decentralized Finance) is closely tied to interest rates within the United States, given that the DeFi market primarily revolves around the US Dollar. This was indicated in the report.

According to analyst Mads Eberhardt, interest rates play a key role in making DeFi appealing, since they decide if investors prefer riskier investments within the decentralized financial sector.

Steno observes that the initial DeFi summer, occurring in 2020, followed swiftly after the Federal Reserve reduced interest rates as a reaction to the Covid pandemic.

Still, interest rates are not the only driver behind a comeback in DeFi. There are also crypto-native factors at work. The growth in stablecoin supply, which has expanded by about $40 billion since January, is crucial because “stablecoins are the backbone of DeFi protocols,” Steno said.

In simpler terms, as interest rates drop, it becomes less expensive to hold stablecoins, making them more appealing – similar to how DeFi becomes more enticing during times when interest rates are low, according to Eberhardt.

As an analyst, I’ve noticed that the consistent expansion of real-world assets (RWAs) like tokenized equities, bonds, and commodities is a significant contributing factor. The impressive 50% increase in these assets year-to-date underscores a robust appetite for on-chain financial solutions such as DeFi, suggesting strong demand for these innovative financial products.

As an analyst, I find that reducing transaction fees on the Ethereum network significantly enhances the accessibility of Decentralized Finance (DeFi), as it lowers barriers to entry and encourages broader participation in this innovative financial ecosystem.